Two New Alternatives to the U.S. Government Bailout Plan

The opinion polls indicate that over 90% of the American people are opposed to a bailout of the investment banks, banks that hold perhaps a trillion dollars worth of “worthless” mortgages. These mortgages were either given to people who were not employed and had no resources to repay the mortgage, or they were mortgages that amounted to predatory mortgages with escalating interest rates that made it impossible for the homeowners to repay. Given that we now are in an election year and every member of the House of Representatives is up for reelection in November and about a third of the senators are up for reelection too, it’s not too surprising that the bailout process seems to have bogged down.

Secretary Paulson’s plan to stampede the Congress into bailing out Goldman Sachs (the company where he was formerly Chairman and CEO) and Morgan Stanley and perhaps a few others, has run into considerable resistance. The American public is saying we should let the banks fail – after all, isn’t that the capitalist system? Isn’t capitalism sort of Darwinian economics where the weak will surely perish and only the fit survive? Isn’t that the wonderful thing about our system? Isn’t the marketplace sort of like an omniscient supercomputer where it decides which of the economic gladiators on Wall Street lives and which ones die?

Now Paulson and Bernanke are saying that we can’t afford to let some of these banks die. (Unlike Lehman Brothers) Are these few banks some sort of sacred irreplaceable national resource – like oil? Are there truly no other alternatives? I have a couple of ideas for alternative solutions, and even though I have never been Chairman of the Board or CEO of Goldman Sachs, in the spirit of trying to help out, I thought I might just suggest them here for consideration.

Plan A: Let the banks fail. Meanwhile open a “U.S. Government Investment Bank” that will temporarily take over the functions of the investment banks that failed due to their own incompent investment practices. The new US GIB would provide the needed capital to existing and new businesses, via business loans, so they can continue functioning or expand and grow. The US GIB would charge interest on loans at rates comparable to what the Wall Street banks currently charge. As far as the U.S. businesses are concerned the whole thing would be pretty transparent – just a change in the name of the investment bank, sort of. The profits from the interest the US GIB earns would go to the US Treasury and be used to reduce the national debt. Then, whenever some new wealthy individuals finally come along and decide to start new investment banks the US GIB would gradually withdraw from the business and return this function to the private sector. So what happens to all the toxic mortgages that the investment banks owned? They would probably be auctioned off at cents on the dollar. Maybe the people who originally took out the mortgages could buy them. At any rate the whole thing happens without any cost to the US taxpayer and doesn’t upset the normal course of business in the US because the US GIB temporarily replaces all the functions of the banks that have melted down.

Plan B: Hey, aren’t we in a global economy now? Whatever happened to globalization and multinational businesses? Why don’t we let the foreign banks come in and perform the functions that the US banks were clearly not competent to do? How about HSBC, the largest bank in the world? It’s now headquartered in Scotland since it moved from Hong Kong and changed its name from Hong Kong and Shanghai Banking Corporation. Speaking of China, why not invite the Chinese banks to set up shop on Wall Street and take over the investment banking business? From everything I’ve seen the Chinese are much more aggressive and smarter capitalists than the Wall Street bankers anyway. How about the German and Swiss banks? There is plenty of money in the world – after all, despite all the meltdowns and economic disasters the total amount of money in the world hasn’t decreased – it’s just changed hands. Hooray for the global economy!!! Besides allowing almost all of our factory jobs to be exported, globalization also allows our financial jobs to go to China, India, and other places too!! Marvelous!

So maybe we should let the new owners of the world’s money run the investment banks and let the tired old incompetent bankers just step down. Let’s just rejoice in the new, global economy. That, after all, is the global capitalist way.

Plan C: Actually, I haven’t thought of Plan C yet. That would take another ten minutes, and I don’t have time right now; besides, it seems to me that either Plan A or Plan B would be preferable to using our tax dollars to bail out the old billionaires on Wall Street. Let me know if you think of a plan C, D, or E. Maybe we could send them in to Congress, then we would all be doing our part to help out.

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